On July 26, 2017, the Executive Board of the
International Monetary Fund (IMF) discussed the Fund’s ongoing work on
enhancing collaboration between regional financing arrangements (RFAs) and
the Fund. The work is part of a broader discussion with Executive Directors
over proposals to strengthen the Global Financial Safety Net (GFSN), which has included the creation of a new
Policy Coordination Instrument on July 14, 2017.
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As the GFSN expanded and became more multi-layered, stronger collaboration
between its various elements has become increasingly important to ensure
timely and effective crisis mitigation. After establishing the mutually
reinforcing benefits derived from stronger collaboration, the paper
proposes modalities for collaboration—across capacity development,
surveillance, and lending. Building on past co-lending experience, it
outlines operational principles to help guide future co-lending between the
Fund and the various RFAs. Recent experience with co-lending highlights the
importance of early and evolving engagement between the RFA and the Fund;
the benefits of exploiting complementarities; the criticality of a single
program framework; and the need to mutually respect the institutional
independence and capacity of the partners.

Executive Directors welcomed the proposed framework for collaboration
between regional financing arrangements (RFAs) and the Fund, which is part
of a broader effort to enhance the global financial safety net (GFSN). They
agreed that stronger Fund-RFA collaboration would bring substantial
mutually-reinforcing benefits. These include promoting early engagement,
exploiting complementarities, increasing the firepower, and mitigating
contagion. Directors also concurred that a more structured approach would
help enhance transparency, predictability, and effectiveness of
collaboration in an increasingly multi-layered GFSN, with the Fund at its
center. From the Fund’s perspective, improved collaboration with RFAs would
help increase its catalytic role and reduce stigma associated with the use
of its resources. For some countries that do not have access to RFA
resources, the Fund’s role at the center of the GFSN, and its readiness to
assist these countries, is even more critical.

Directors endorsed the six operational principles to guide future Fund-RFA
collaboration, as laid out in the staff paper. They welcomed the fact that
these principles were grounded in actual Fund-RFA co-financing experience
and, at the same time, are generally in line with the existing high-level
G20 principles. Directors underscored the importance of the Fund and the
RFA respecting each other’s mandate and independence; aiming at consistency
and evenhandedness, and encouraging early cooperation. Directors also
emphasized that the Fund’s preferred creditor status must be fully
respected. A number of Directors observed that operationalizing some of
these principles may be challenging given the inherent tensions between
them.

Directors broadly supported the proposed operational modalities for
collaboration based on activities in the areas of capacity development,
surveillance, non-financial support, and lending. This framework would
allow the Fund to tailor its engagement with RFAs depending on the form of
operations and the capacity of each RFA. At the same time, it would provide
clear rules of engagement ranging from formal agreement for surveillance
and capacity development, to more flexible modalities suitable where the
situation may change rapidly, including for lending activities. Directors
noted that the different modalities were necessary given the diversity and
heterogeneity of RFAs. Directors generally saw mutual benefits from a
regular exchange of views, and possible attendance of RFA staff in selected
Article IV mission meetings with the consent of both the member country
concerned and Fund mission chief.

In the context of lending arrangements, Directors emphasized that the roles
of the Fund and the RFA in program design and monitoring need to reflect
their respective mandates and policies, as well as the capacity of the RFA.
Where the RFA has limited capacity or its areas of responsibilities do not
overlap with the Fund, the Fund should take a leading role in establishing
the macroeconomic framework, policies, and conditionality. Where the RFA
has expertise and room for a division of labor is limited, collaboration
could in principle be based on a single coherent and consistent program
framework and the independence of the parties involved. Directors observed
that this second model calls for careful implementation to strike the right
balance between flexibility and evenhandedness while preserving
independence, with a few suggesting that it could be helpful to develop
clear criteria for determining RFA capacity. Directors stressed that,
regardless of the modality used, it would be important to adhere to the six
operational principles and for each institution to comply with its own
governance structure. They highlighted, in particular, the need to preserve
the Fund’s high-quality lending standards and independence of assessments
in its core areas of responsibility, including debt sustainability
analysis, and to adhere to the Fund’s policies.

Directors acknowledged the potential for difficulties in resolving
fundamental differences of views over program design and conditionality in
certain situations, which may have implications for public communication.
They agreed that formal mechanisms for resolving difficulties may be
counterproductive, although some saw merit in developing broad parameters
ex ante. Directors noted that co-financing by the Fund would proceed only
when the member’s program, including the macroeconomic framework and
conditionality, is consistent with the Fund’s lending policies, and that
the Fund’s role in program design and monitoring would be independent of
the share of overall financing it provides. In this context, efforts by the
RFA to extend the maturity of its financing to better align with that of
the Fund would help address financing assurances concerns. Some Directors
emphasized that, in protecting its independence, the Fund must be prepared
to withhold its participation whenever areas core to its mandate would be
compromised, and noted in this regard that the recent IEO report on euro
area programs provides insightful lessons.

Directors underlined the importance of sharing technical information
between the Fund and RFAs, conditional on reciprocity and confidentiality
assurances. They recognized that a clearly-defined legal identity and
governance structure of the RFA could help facilitate collaboration in this
area. A number of Directors also noted that consideration should be given
to sharing country staff reports, especially in a lending context, with
relevant RFAs at the time they are issued to the Fund’s Executive Board for
consideration. A few Directors noted that information sharing, and
technical assistance more broadly, would particularly help smaller RFAs
strengthen their capacity over time.

Directors regarded the proposals discussed today as an important first step
toward stronger and more structured collaboration between the Fund and
RFAs. They welcomed the proposed next steps, including continued dialogue
between the Fund and RFAs, both individually and collectively, and joint
test-runs. These efforts would help improve the operational preparedness of
both sides, identify any impediments to co-financing operations and, as
warranted, develop more concrete guidance. Directors encouraged staff to
continue to draw on new experiences and ex post program evaluations, and
provide an update to the Board once experience with the framework
established here has been accumulated or as significant issues arise.